Vikas Academy, Madurai V. ITO, Madurai

ITA 2323/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90474 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 20-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-09-2014
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANACIT D R
• Assessee Lawyers: K RAVI
• Keywords: Capital asset; Cost of acquisition; Fair market value
• Section: 143(3); 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2323 /MDS./2014 ( !' #' / ASSESSMENT YEAR :2009-10) M/S.VIKAS ACADEMY, VIKAS SCHOOL COMPOUND, ARAPALAYAM CROSS ROAD, PONNAGARAM, MADURAI. VS. INCOME TAX OFFICER, WARD II(4), MADURAI. PAN AADFT 2764 M ( / APPELLANT ) ( / RESPONDENT ) $% & ' / APPELLANT BY : MR.K.RAVI,ADVOCATE ()$% & ' / RESPONDENT BY : DR.S.MOHARANA,CIT, D.R * + & ,- / DATE OF HEARING : 20.04.2015 .# & ,- /DATE OF PRONOUNCEMENT : 12.06.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-I, MADURA I DATED ITA NO.2324/MDS/2014 2 20.08.2014 IN ITA NO.0053/2013-14 PASSED UNDER SEC. 143(3) READ WITH SECTION 147 & SEC. 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED 24 ELABORATE & ARGUMENT ATIVE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSU E IS THAT:- (1) THE COMMISSIONER OF INCOME TAX (APPEALS) HAD E RRED IN SUSTAINING THE VALIDITY OF THE RE-ASSESSMENT PROCEE DINGS U/S.147 OF THE ACT AS IT IS BEYOND THE SCOPE OF THE POWERS CONFERRED BY SEC.148 OF THE ACT . (2) THE COMMISSIONER OF INCOME TAX (APPEALS) HAD E RRED IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER WHO H AD MADE ADDITION BY INVOKING THE PROVISIONS OF SECTION 45(4 ) OF THE ACT AND TREATING THE SETTLEMENT OF AN ASSET IN FAVOUR O F THE RETIRING PARTNER AS CAPITAL GAIN AMOUNTING TO ` 6,16,67,531/-. (3) THE COMMISSIONER OF INCOME TAX (APPEALS) HAD E RRED IN SUSTAINING THE ADDITION ON LEVY OF INTEREST U/S.234 B & 234C OF THE ACT. ITA NO.2324/MDS/2014 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF RUNNIN G EDUCATIONAL INSTITUTIONS, AND REAL ESTATE, FILED ITS RETURN OF INCOME ON 31.03.2010 ADMITTING ITS INCOME AS NIL. INITIALLY, THE RETURN WAS PROCESSED U/S.143(1) ON 25.01.2011, SUBSEQUENTLY THE ASSESSME NT WAS REOPENED BY ISSUANCE OF NOTICE U/S.148 OF THE ACT ON 04.04.2011 AND FINALLY ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 28.3.2013 WHEREIN THE LD. ASSESSING OFFICER DETERMI NED THE LONG TERM CAPITAL GAIN OF THE ASSESSEE AT ` 6,16,67,531/- FOR TRANSFERRING THE IMMOVABLE PROPERTY OF ASSESSEE TO THE OUTGOING PART NER MRS.ARUNA ` 9,04,10,000/- INVOKING THE PROVISIONS OF SECTION 4 5(4) OF THE ACT. 4. ON THE ISSUE OF REOPENING, THE LD. A.R. DID NOT ADVANCE ANY ARGUMENT TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT REOPENING WAS BAD IN THE CASE OF THE ASSESSEE. HENCE, THE SAM E IS DISMISSED AS NOT PRESSED. SIMILARLY, ON THE ISSUE OF LEVY OF INTEREST U/S. 234 B & 234C OF THE ACT WAS ALSO NOT ARGUED, THEREFORE THE SAME IS DISMISSED AS A CONSEQUENTIAL. THEREFORE THE ONLY GROUND TO BE ADJUDICATED IN THE CASE OF THE ASSESSEE IS IN REGARD TO THE ADDITI ON MADE BY THE LD. ITA NO.2324/MDS/2014 4 ASSESSING OFFICER BY INVOKING SECTION-45(4) OF THE ACT FOR TRANSFER OF IMMOVABLE PROPERTY OF THE ASSESSEE TO THE OUTGOING PARTNER OF THE FIRM. 4. DURING THE YEAR UNDER CONSIDERATION, IT WAS OB SERVED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD TRANSFERRED ITS IMMOVABLE PROPERTY TO THE OUTGOING PARTNER, THE VALUE OF WHIC H WAS STATED AS ` 9,04,10,000/- IN THE PARTITION DEED ENTERED BETWEEN THE FIRM AND THE OUTGOING PARTNER. THE LD. ASSESSING OFFICER OPINED THAT IN THE CASE OF THE ASSESSEE SECTION 45(4) OF THE ACT WOULD BE APPL ICABLE AND BY INVOKING THE AFORESAID PROVISIONS OF THE ACT COMPUT ED THE CAPITAL GAIN AT ` 6,16,67,531/- BEING THE DIFFERENCE BETWEEN THE VALU E OF THE ASSET TRANSFERRED AS STATED IN THE PARTITION DEED AT ` 9,04,10,000/- AND THE INDEXED COST OF ACQUISITION OF ` 2,87,42,469/-. THE LD. A.R. HAD OBJECTED TO THE ADDITION BEFORE THE LD. ASSESSING O FFICER FOR THE FOLLOWING REASONS:- THE TERM OR OTHERWISE AS INTERPRETED IN THE CASE OF CIT VS. A.N.NAIK ASSOCIATES (2004) 265 ITR 346 (BOM.) CANNOT BE MADE APPLICABLE UNLESS THERE IS A TRANSFER OF CAPITAL ASSET BY WAY OF DISTRIBUTION HAPPENS IN THE PARTNERSHIP. ITA NO.2324/MDS/2014 5 ONLY WHEN THERE IS A TRANSFER OF CAPITAL ASSET BY W AY OF DISTRIBUTION ON THE DISSOLUTION OF A FIRM OR OTHERWISE, CAN THE PRO VISIONS OF SECTION 45(4) BE INVOKED. IN THE PRESENT CASE THERE IS NO DISTRIBUTION AS ENV ISAGED BY THE SECTION 45(4), SINCE THERE HAS BEEN NO CESSATION OF BUSINES S AS THE OTHER PARTNERS CONTINUE THE BUSINESS AS A GOING CONCERN A FTER THE RETIREMENT OF ONE OF THEM, THERE CAN BE NO DISTRIBUTION WHERE A RUNNING BUSINE SS AS A GOING CONCERN IS TAKEN OVER AS POINTED BY THE SUPREME COU RT IN SAKTHI TRADING CO. VS. CIT IN (2001) 250 ITR 871. RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS : O PURANYANNUR INDUSTRIES VS. ACIT (2010) 188 TAXMAN 34(MAG.)(COCHIN)(TRIB.) WHEREIN IT WAS HELD THAT ON ALLOCATION OF PROPERTIES AND GOODWILL TO THE ACCOUNT OF THE RETIR ING PARTNER, AND CONSTITUTION BY REMAINING PARTNERS, BY A NEW DE ED ON NEXT DAY, WOULD NOT AMOUNT TO DISSOLUTION OF EXISTING FI RM, AND CONSTITUTION OF NEW FIRM SO AS TO INVOKE PROVISIONS OF SECTION 45(4). WHERE SOME PARTNERS EXIST FROM THE FIRM WITH OTHER PARTNERS CONTINUING THE BUSINESS AS A GOING CONCERN WITH ACCOUNTS INDICATING SETTLEMENT OF ACCOUNT BY CREDIT TO PARTNERS FOR GOODWILL, THERE CAN BE NO INTERFERENCE OF ANY T RANSFER BY THE FIRM OR THE EXITING PARTNERS TO THE CONTINUING PART NERS THERE CAN BE NO LIABILITY. O DY. LD. CIT VS. G.K.ENTERPRISES (2001) 79 TTJ (MAD .) 82, WHEREIN IT WAS HELD BY THE TRIBUNAL THAT THE TRANSA CTIONS AS EVIDENCED BY THE DOCUMENTS FILED DID NOT SHOW ANY D ISSOLUTION OF FIRM AS MUCH HAS TO APPLY THE PROVISIONS OF SECT ION 45(4) OF THE ACT. IT CITED THE DECISION OF GUJARAT H.C IN CI T VS. ITA NO.2324/MDS/2014 6 MOHANBHAI PAMABHAI (1973) 91 ITR 393 AFFIRMED BY TH E APEX COURT REPORTED IN 165 ITR 166(SC). O IT IS HELD IN THE ABOVE CASE BY THE ITAT THAT ALLO CATION OF ASSETS OF THE FIRM TO THE RETIRING PARTNERS IS THE BASIS FOR INVOCATION OF PROVISIONS OF SECTION 45(4). IN THE C ASE UNDER CONSIDERATION, NEITHER THERE WAS ANY DISSOLUTION NO R DID OTHER EVENT TAKE PLACE THAT HAD AN EFFECT OF ALLOCATION O F EXCLUSIVE INTEREST IN ANY CAPITAL ASSET TO THE RETIRING PARTN ERS. IN THESE CIRCUMSTANCES, FAA WAS JUSTIFIED IN HOLDING THAT CO NDITIONS OF SECTION 45(4) WERE NOT FULFILLED. IN OUR OPINION TH E FIRM OR THE CONTINUING PARTNERS WERE NOT LIABLE TO BE TAXED UND ER THE HEAD CAPITAL GAIN, AS HELD BY THE FAA. RETIRING PARTN ERS HAD RELINQUISHED THEIR RIGHTS IN THE ASSETS OF THE FIRM AND IN LIEU OF THAT FIRM HAD PAID THE RETIRING PARTNERS MONEY LYIN G IN THEIR CAPITAL ACCOUNT. OBVIOUSLY, ASSESSEE-FIRM HAD NOT T RANSFERRED ANY RIGHT IN CAPITAL ASSET TOT EH RETIRING PARTNERS RATHER IT IS THE RETIRING PARTNERS WHO HAVE TRANSFERRED THE RIGHTS I N CAPITAL ASSETS IN FAVOUR OF THE CONTINUING PARTNERS. SO, EV EN IF CAPITAL GAIN HAS TO BE TAXED IT HAS TO BE IN THE HANDS OF T HE RETIRING PARTNERS NOT IN THE CASE OF THE ASSESSEE FIRM. THE BASIS OF ARRIVAL OF THE FAIR MARKET VALUE OF TH E ASSET WHICH SHALL BE DEEMED TO BE THE CONSIDERATION ADOPTED FOR ` 9,04,10,000/- HAS NOT BEEN STATED. 5. HOWEVER THE LD. ASSESSING OFFICER REJECTED ARGU MENTS OF THE LD. A.R. FOR THE FOLLOWING REASONS:- ITA NO.2324/MDS/2014 7 THE CASE LAWS QUOTED ARE NOT AT ALL RELEVANT AND TH EREFORE NOT ACCEPTABLE AS UNDER: CASE LAW QUOTED HELD/DISCUSSED REASONS FOR REJECTI ON SAKTHI TRADING CO. V.CIT IN (2001) 250 ITR 871 THE RULING OF THE APEX COURT IS RELATING TO RECONSTITUTION OF FIRM ON THE DEATH OF ONE OF THE PARTNERS AND RELATING VALUATION OF CLOSING STOCK. THERE IS NO TRANSFER OF CAPITAL ASSET AND THE CASE LAW IRRELEVANT TO THIS CASE. PURANYANNUR INDUSTRIES VS. ACIT (2010) 188 TAXMANN 34(MAG.)(COCHIN)(TRIB.) THERE WAS NO DISSOLUTION AND NO DE-FACTO DISTRIBUTION OF ASSETS. THE TRIBUNAL HAS CONSIDERED THE QUESTION OF DISSOLUTION AND NOT DEALT WITH THE MENAING OF OTHERWISE. FURTHER THERE IS DE-FACTO TRANSFER OF ASSET. PURANYANNUR INDUSTRIES VS. ACIT (2010) 188 TAXMANN 34(MAG.)(COCHIN)(TRIB.) HERE AGAIN THE TRIBUNAL HAS CONSIDERED THE QUESTION OF DISSOLUTION AND NOT THE MEANING OF OTHERWISE. GUJARAT H.C IN CIT VS. MOHANBHAI PAMABAI (1973) 91 ITR 393 CASE LAW RELATES TO RETIREMENT OF PARTNERS AND WITH REGARD TO SHARE OF GOODWILL. BOTH THE POINTS IN QUESTION ARE NOT RELEVANT IN THE INSTANT CASE. ITO VS. FINE DEVELOPERS IN ITA NO.4630(MUM.) DISCUSSION IS RELATING TO QUESTION OF WHETHER THERE IS ANY TRANSFER DUE TO INTRODUCTION OF A NEW PARTNER IN A FIRM. TOTALLY IRRELEVANT TO THE INSTANT CASE AND TOTALLY MISQUOTED. ON GOING THROUGH THE CASE LAWS QUOTED BY THE ASSESS EE, IT IS FOUND THAT EITHER THEY ARE IRRELEVANT OR MISQUOTED. FURTHER IT HAS BEEN OBSERVED BY THE HONBLE ITAT, M UMBAI IN THE CASE OF ITO VS. FINE DEVELOPERS IN ITA NO.4630(MUM) OF 2 011 THAT OBVIOUSLY ASSESSEE FIRM HAD NOT TRANSFERRED ANY RIG HT IN CAPITAL ASSET TO THE RETIRING PARTNERS RATHER IT IS THE RETIRING PAR TNERS WHO HAVE TRANSFERRED THE RIGHTS IN CAPITAL ASSETS IN FAVOUR OF THE CONTINUING PARTNERS. SO EVEN IF CAPITAL GAIN HAS TO BE TAXED I T HAS TO BE IN THE HANDS OF THE RETIRING PARTNERS NOT IN THE CASE OF T HE ASSESSEE FIRM. IN THE INSTANT CASE, THERE IS A CLEAR TRANSFER OF S CHEDULE A PROPERTY AS PER THE PARTITION DEED BY THE CONTINUING TWO PARTNE RS OF THE FIRM AND RELINQUISHMENT OF SCHEDULE B PROPERTY BY THE OUTG OING PARTNER. ITA NO.2324/MDS/2014 8 THEREFORE, AS FAR AS THE TRANSFER OF THE SCHEDULE A PROPERTY, THE FIRM HAS TO BE TAXED U/S.45(4) OF THE IT ACT. DURING THE COURSE OF THE ABOVE DISCUSSED WRITTEN SU BMISSION ON 20.02.2013 IT WAS EXPLAINED TO THE ASSESSEES REPRE SENTATIVE ABOUT THE BASIS FOR THE ARRIVAL OF THE DEEMED VALUE OF THE CO NSIDERATION OF RS.9,04,10,000/- BEING THE ONE QUOTED IN THE PARTIT ION DEED ENTERED INTO BETWEEN THE OUTGOING PARTNER AND THE OTHER PARTNERS OF THE FIRM. THERE WAS ABSOLUTELY NO DISPUTE RAISED. A LETTER HAS BEEN ISSUED TOT EH JOINT SUB-REGISTRAR -4, MADURAI TO CORRECTLY ASCERTAIN ABOUT THE FAIR MARKET VALUE AS ON THE DATE OF TRANSFER AND THE REPLY IS AWAITED. NECESSARY REMEDIAL ACTION WILL BE INITIATED IN CASE OF ANY DIFFERENCE IN THE VALUE OF ADOPTED AND THE ACTUAL FAIR MARKET VALUE. 8. IN THE INSTANT CASE, THERE IS DISTRIBUTION OF CA PITAL ASSET, NAMELY, THE LAND AND BUILDING AS VISIBLE FROM THE PARTITION DEED. FU RTHER, IT IS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. A. N.NAIK ASSOCIATES (2004) 265 ITR 346 AS UNDER:- WORD OTHERWISE USED IN SECTION 45(4) TAKES INTO I TS SWEEP NOT ONLY CASES OF DISSOLUTION BUT ALSO CASES OF SUBSISTING P ARTNERS OF A PARTNERSHIP, TRANSFERRING ASSETS IN FAVOUR OF A RET IRING PARTNER. THE EXPRESSION OTHERWISE HAS NOT TO BE READ EJUSDEM GENERIS WITH THE EXPRESSION DISSOLUTION OF A FIRM OR BODY OF INDIVIDUALS OR ASSOCIATION OF PERSONS. THE EXPRESSION OTHERWISE HAS TO BE READ WITH THE WORDS TRANSFER OF CAPITAL ASSETS BY WAY OF DISTRIBUTION OF CAPITAL ASSETS. IF SO READ, IT BECOMES CLEAR THAT E VEN WHEN A FIRM IS IN EXISTENCE AND THERE IS A TRANSFER OF CAPITAL ASS ETS, IT COMES WITHIN EXPRESSION OTHERWISE AS THE OBJECT OF THE AMENDIN G ACT WAS TO REMOVE THE LOOPHOLE WHICH EXISTED WHEREBY CAPITAL GAIN TAX WAS NOT CHARGEABLE. THEREFORE, WHEN THE ASSET OF THE P ARTNERSHIP IS ITA NO.2324/MDS/2014 9 TRANSFERRED TO A RETIRING PARTNER, THE PARTNERSHIP WHICH IS ASSESSABLE TO TAX CEASES TO HAVE A RIGHT OR ITS RIGHT IN THE P ROPERTY STANDS EXTINGUISHED IN FAVOUR OF THE PARTNER TO WHOM IT I S TRANSFERRED. IF SO READ, IT WILL FURTHER THE OBJECT AND PURPOSE AND IN TENT OF THE AMENDMENT OF SECTION 45. ONCE THAT BE THE CASE, THE TRANSFER OF ASSETS OF THE PARTNERSHIP TO THE RETIRING PARTNERS WOULD AMOUNT TO THE TRANSFER OF THE CAPITAL ASSETS IN THE NATURE OF CAP ITAL GAINS AND BUSINESS PROFITS WHICH ARE CHARGEABLE TO TAX U/S. 4 5(4). THEREFORE, THE WORD OTHERWISE TAKES INTO ITS SWEEP NOT ONLY CASES OF DISSOLUTION BUT ALSO CASES OF SUBSISTING PARTNERS O F A PARTNERSHIP, TRANSFERRING ASSETS IN FAVOUR OF A RETIRING PARTNER . THE LD. A.R. HAD FURTHER MADE THE FOLLOWING REPRESE NTATIONS BEFORE THE LD.A.O:- THE PROPERTY WAS PURCHASED WITH LOAN FROM FEDERAL BANK, MADURAI. THE LOAN OUTSTANDING AS ON 31.03.2009 IS ` 3,86,20,848/-(AS PER BALANCE SHEET SUBMITTED ALONG WITH RETURN OF INCOME FOR THE ASSES SMENT YEAR 2009-10). THIS NEEDS TO BE CONSIDERED AT THE TIME OF CAPITAL GAIN CALCULATION IF THE ASSESSING OFFICER INTENDS TO TAX THE PARTITION DONE BETWEEN MR.BIJU SUNDARSHAN AND MR.BEBOY JOHN ON THE ONE SIDE AND MR S.ARUNA VISVESWAR ON THE OTHER SIDE. THE LOAN HAS BEEN AGREED TO BE SETTLED BY THE CONTI NUING PARTNERS AND HENCE THE SACRIFICE BY THE CONTINUING PARTNERS NEED TO BE FACTORED TO THE EXTENT OF LOAN OUTSTANDING, SINCE THE LOAN HAS BEEN TAKEN FOR THE PURCHASE OF ASSET FROM MADURA COATS LTD AS PER THE DEED ENCL OSED. ITA NO.2324/MDS/2014 10 THE LD. ASSESSING OFFICER REJECTED THE ARGUMENT OF THE LD. A.R. BY OBSERVING AS UNDER:- 10. IT IS TO BE POINTED OUT HERE THAT HAD THERE BEE N NO LIABILITY, THE SHARE OF THE OUTGOING PARTNER ON THE PROPERTY WOULD BE MO RE BY THE PROPORTIONATE VALUE OF LIABILITY WHICH SHOULD HAVE BEEN BROUGHT TO TAX. FURTHER, THERE IS NO PROVISION IN THE ACT TO PROVID E FOR SUCH LIABILITY IN THE CAPITAL GAIN TAX. IT IS ONLY THE COST OF ACQUISITI ON AND COST OF IMPROVEMENT WHICH SHOULD BE TAKEN INTO ACCOUNT AFTER THE INDEXA TION, IF ANY. ANY SUCH LIABILITY WOULD BECOME DEDUCTIBLE IN CASES OF INHER ITANCE/WILL, WITH A SPECIFIC CONDITION IN IT, ONLY. BUT IN THE CASE OF ASSESSEE FIRM, IT IS ONLY PARTITION OF FIRMS ASSETS. AS DISCUSSED SUPRA, TH E SHARE OF THE OUTGOING PARTNER WOULD HAVE BEEN MORE HAD THERE BEEN NO LIAB ILITY. THEREFORE, THE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE AND REJECTE D. 11. THEREFORE, IN VIEW OF THE FOREGOING DISCUSSION AND APPLYING THE RATIO OF THE JUDGMENT IN THE CASE CIT VS.A.N.NAIK ASSOCIATES (2004) 265 ITR 346(BOM.), I HOLD THAT THE FACTS OF THIS CASE CLEAR LY FALLS WITHIN THE MEANING OF SECTION 45(4) OF THE I.T.ACT, 1961 AND THE DEEME D VALUE OF TRANSFER IS TAKEN AS RS.9,04,10,000/-. 6. FURTHER ON APPEAL, THE LD. CIT (A) SUSTAINED TH E ORDER OF THE LD. ASSESSING OFFICER BY OBSERVING AS UNDER:- 5.26 THE ABOVE DECISIONS ARE ON IDENTICAL ISSUE AN D HAVE CONSIDERED THE MATTER HOLISTICALLY IN A VERY DETAILED MANNER D ISCUSSING AND CONSIDERING THE STATEMENT OF OBJECTS OF FINANCE ACT 1987 FOR IN TRODUCING THE SECTION 45(4) TAKING INTO CONSIDERATION WHETHER PARTNERSHIP ASSETS ARE CONVERTED TO INDIVIDUAL ASSETS HOLDING THAT PROVISIONS OF SECTIO N 45(4) ARE APPLICABLE. ITA NO.2324/MDS/2014 11 THE CASE LAWS CITED BY THE APPELLANT, DISCUSSED EAR LIER, ARE NOT ON IDENTICAL FACTS AND ALSO THEY IGNORED THE STATEMENT OF OBJECT S OF FINANCE ACT 1987 FOR INTRODUCING THE SECTION 45(4). IN MY VIEW THE DECIS ION OF HIGH COURT OFF BOMBAY, GOA BENCH IN CIT VS. A.N.NAIK ASSOCIATED (2 004) 265 ITR 346 AND ITAT MUMBAI BENCH I SUDHAR M.SHETTY VS. ACIT, MUMBAI [2011] 130 ITD 197(MUM.) ARE DIRECTLY APPLICABLE TO THE PRESEN T CASE. FOLLOWING ABOVE TWO DECISIONS IT IS HELD THAT PROVISIONS OF SECTION 45(4) ARE APPLICABLE AS THERE IS CONVERSION OF PARTNERSHIP ASSETS INTO THE INDIVIDUAL ASSETS. 5.27 IT IS HELD THAT THE DECISION OF THE ASSESSI NG OFFICER ON THIS ISSUE IS IN ORDER. OBJECTS OF THE APPELLANT ON THIS ISSUE ARE R EJECTED. 6. WHAT IS THE CONSIDERATION TO BE ADOPTED: THE NEXT OBJECTION RELATES ADOPTING RS.9,04,10,000/- AS THE CONSIDERATION WHIL E COMPUTING CAPITAL GAINS. AS DISCUSSED BY THE A.O A PARTITION DEED WA S ENTERED IN WHICH THE VALUE OF LAND AND BUILDING ALLOTTED TO M.ARUNA VISH WESHWAR WAS RECORDED AS RS.9,04,10,000. THE ASSESSING OFFICER HAS ALSO WRITTEN TO THE SUB REGISTRAR ABOUT THE VALUE WHICH WAS NOT RECEIVED. H E CHOSE TO ADOPT THIS VALUE. 6.1. APPELLANT OBJECTED AS UNDER: MERELY BASED ON THE NUMBER MENTIONED IN THE PA RTITION DEED, WHICH IS THE VALUE OF THE PROPERTY AS PER THE PROVI SIONS OF THE INCOME TAX ACT 1961. SINCE THE ASSESSING OFFICER HAS WRIT TEN A LETTER HAD TO THE JOINT SUB REGISTRAR MADURAI TO ASCERTAIN HE FAI R MARKET VALUE AS ON THE DATE OF TRANSFER. HE HOWEVER PROCEEDED WITH THE VALUE AS PARTITION DEED. IN CASE THE VALUE ADOPTED BY THE APPELLANT WAS ON T HE LOWER SIDE THE ASSESSING OFFICER WOULD HAVE RAISED THE VALUE OF TH E COMPUTATION BASED ON THE FAIR MARKET VALUE. HENCE THE LD. ASSE SSING OFFICER FAILED TO COMPUTE THE CAPITAL GAIN AS ENVISAGED IN SECTION 48 OF THE ITA NO.2324/MDS/2014 12 INCOME TAX AND SINCE THE COMPUTATION FAILS THE ASSE SSMENT ORDER NEEDS BE QUASHED. THE PROP CONSISTS OF LAND AND BUILDING AND THE SAME WAS DEPRECIATED IN THE BOOKS OF ACCOUNT AND HENCE THE C OMPUTATION OF LAND AND BUILDING NEEDS TO BE SEPARATE AND CANNOT B E TAKEN AS A CONSOLIDATED FIGURE. HENCE IN THE INSTANT CASE THE COMPUTATION OF THE CAPITAL GAIN IS INCORRECT AND IS LIABLE TO BE RECOM PUTED ON ACTUAL BASIS. 6.2 AS PER THE PROVISIONS OF SECTION 45(4), THE F AIR MARKET VALUE OF THE PROP SHOULD BE ADOPTED AS THE DEEMED CONSIDERAT ION. IT IS PERTINENT HERE TO NOTE THAT THE FIGURE OF RS.9,04,1 0,000/- WAS ADOPTED BY THE ASSESSING OFFICER AS THE FAIR MARKET VALUE S INCE THIS IS MENTIONED IN THE PARTITION DEED DATED 02.06.2008 EN TERED INTO BETWEEN THE OUTGOING PARTNER AND THE OTHER PARTNERS OF THE FIRM AS THE VALUE OF PROPERTY AGREED BY ALL THE PARTNERS. WHAT ELSE CAN BE RELIED MORE THAN THIS? OF COURSE THE ONLY OTHER OP TION IS THAT ASSESSING OFFICER HAS WRITTEN TO THE JOINT SUB-REGI STRAR-4, MADURAI ABOUT THE VALUE OF THE PROPERTY THE REPLY TO MAKE S URE THAT THIS IS NOT LESS THAN THE MARKET VALUE AS PER THE SUB REGISTRAR . THE VALUE WAS NOT RECEIVED AT THE TIME OF CONCLUSION OF ASSESSMEN T AND HENCE A.O ADOPTED THE VALUE WHICH IS SCIENTIFIC AND BACKED BY EVIDENCE FILED BY THE APPELLANT. THERE IS NO MERIT IN APPELLANTS AR GUMENTS AND ARE REJECTED. 7. MOREOVER ON THE ISSUE WITH RESPECT TO LOAN TAKE N FROM FEDERAL BANK, WHICH WAS TO BE SETTLED BY THE CONTINUING PAR TNERS THAT NEED TO BE FACTORED WHILE COMPUTING CAPITAL GAIN OF THE ASS ESSEE WAS ALSO ITA NO.2324/MDS/2014 13 DECIDED AGAINST THE ASSESSEE BY THE LD. CIT (A) THE REBY SUSTAINING THE ORDER OF THE LD. ASSESSING OFFICER. 8. BEFORE US, THE LD. A.R. REITERATED THE SUBMISS IONS MADE BEFORE THE REVENUE ON EITHER OCCASIONS AND ALSO HEAVILY RE LIED IN THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN TH E CASE ACIT VS. GOYAL DRESSES REPORTED IN 126 ITD 131 WHICH WAS CON FIRMED BY THE HONBLE JURISDICTIONAL MADRAS HIGH COURT VIDE ORDER DATED 20.8.2013 IN TAX APPEAL NO.222 OF 2013, 84 OF 2009 & 88 OF 20 10. HOWEVER, WE FIND THE DECISION OF THE GOYAL DRESSES NOT APPLI CABLE TO THE CASE OF THE ASSESSEE BECAUSE THAT CASE RELATES TO FAMILY ARRANGEMENT WHICH IS NOT THE CASE OF THE ASSESSEE BEFORE US. L D. D.R ON THE OTHER HAND RELIED ON THE ORDERS OF THE REVENUE. 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. THE CASE OF THE ASS ESSEE IS VERY SIMPLE. DURING THE YEAR UNDER CONSIDERATION THE AS SESSEE FIRM WAS RECONSTITUTED WHEREIN ONE OF THE PARTNERS MRS.ARUNA N VISVEWAR HAD RETIRED AND THEREFORE RECONSTITUTED PARTNERSHIP DEE D WAS DRAWN ON ITA NO.2324/MDS/2014 14 30.5.2008 WHEREBY THE ASSESSEE FIRM HAS TRANSFERRED ONE OF ITS IMMOVABLE ASSET BEING LAND TO THE RETIRING PARTNER MRS.ARUNA VISVEWAR VALUED AT ` 9,04,10,000/- AS MENTIONED IN THE PARTITION DEED ENTERED BETWEEN THE FIRM AND THE OUTGOING PARTNER. THE QUESTION THAT ARISES BEFORE US IS WHETHER THE TRANSFER OF LAND BE LONGING TO THE FIRM TO THE RETIRING PARTNER IS LIABLE TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND IF SO IN WHOSE HANDS. IT IS PERTINENT T O MENTION HERE THAT THE TRANSFER OF THE ASSET IS BY THE FIRM WHICH IS A LEGAL ENTITY TO THE RETIRING PARTNER ANOTHER DISTINCT LEGAL ENTITY BEIN G AN INDIVIDUAL. THEREFORE, IT IS CRYSTAL CLEAR THAT CAPITAL GAIN WI LL ARISE IN THE HANDS OF THE TRANSFEROR VIZ. THE ASSESSEE FIRM AND NOT THE T RANSFEREE VIZ. THE RETIRING PARTNER MRS.ARUNA VISVEWAR. PROVISIONS OF SECTION 45(4) OF THE ACT ARE REPRODUCED HEREIN BELOW FOR REFERENCE:- SECTION-45(4):- THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASS ETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF P ERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE , SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM, ITA NO.2324/MDS/2014 15 ASSOCIATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE, AND FOR THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON T HE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FUL L VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. THE WORDS OR OTHERWISE HAVE BEEN ELABORATELY EXPLAINED IN THE FOLLOWING DECISIONS:- I) ACIT V.D.D.INTERNATIONAL (GLOBAL) [2009]125 TTJ (AS R.) 112 THE WORD OTHERWISE, USED IN SECTION 45(4) IS NOT TO BE READ EJUSDEM GENERIS WITH DISSOLUTION OF FIRM OR AOP. THE EXPRE SSION OTHERWISE HAS TO BE READ WITH THE WORDS TRANSFER OF CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION O F A FIRM. THE WORD OTHERWISE IN SECTION 45(4) TAKES WITHIN ITS SWEEP NOT ONLY CASES OF DISSOLUTION BUT ALSO CASES OF SUBSISTING PARTNERS O F A PARTNERSHIP TRANSFERRING ASSETS TO RETIRING PARTNERS. ITA NO.2324/MDS/2014 16 (II) NEW GUJARAT TIN PRINTING WORKS V. ITO [2010] 8 TAXM ANN.COM 24 / [2011] 128 ITD 182(AHD.) THE WORD OTHERWISE AS OCCURRING IN SECTION 4 5(4) COVERS A SITUATION, WHERE THE CAPITAL ASSET OF THE FIRM IS D ISTRIBUTED TO ITS PARTNERS OTHERWISE THAN ON DISSOLUTION OF THE FIRM. (III) CIT VS. A.N.NAIK ASSOCIATES [2004] 136 TAXMAN 107/2 65 ITR 346(BOM.) THE EXPRESSION OTHERWISE HAS NOT TO BE READ EJUSDEM GENERIS WITH THE EXPRESSION DISSOLUTION OF A FIRM OR BODY OF IN DIVIDUALS OR ASSOCIATION OF PERSONS. THE EXPRESSION OTHERWISE HAS TO BE READ WITH THE WORDS TRANSFER OF CAPITAL ASSETS BY WAY OF DISTRIBUTION OF CAPITAL ASSETS. IF SO READ, IT BECOMES CLEAR THAT E VEN WHEN A FIRM IS IN EXISTENCE AND THERE IS A TRANSFER OF CAPITAL ASSETS , IT COMES WITHIN EXPRESSION OTHERWISE AS THE OBJECT OF THE AMENDIN G ACT WAS TO REMOVE THE LOOPHOLE WHICH EXISTED WHEREBY CAPITAL GAIN TAX WAS NOT CHARGEABLE. THEREFORE, WHEN THE ASSET OF THE PARTNE RSHIP IS TRANSFERRED TO A RETIRING PARTNER, THE PARTNERSHIP WHICH IS ASSESSABLE TO TAX CEASES TO HAVE A RIGHT OR ITS RIGHT IN THE P ROPERTY STANDS EXTINGUISHED IN FAVOUR OF THE PARTNER TO WHOM IT IS TRANSFERRED. IF SO ITA NO.2324/MDS/2014 17 READ, IT WILL FURTHER THE OBJECT AND PURPOSE AND IN TENT OF THE AMENDMENT OF SECTION 45. ONCE THAT BE THE CASE, THE TRANSFER OF ASSETS OF THE PARTNERSHIP TO THE RETIRING PARTNERS WOULD AMOUNT TO THE TRANSFER OF THE CAPITAL ASSETS IN THE NATURE OF CAP ITAL GAINS AND BUSINESS PROFITS WHICH ARE CHARGEABLE TO TAX U/S. 4 5(4). THEREFORE, THE WORD OTHERWISE TAKES INTO ITS SWEEP NOT ONLY CASES OF DISSOLUTION BUT ALSO CASES OF SUBSISTING PARTNERS O F A PARTNERSHIP, TRANSFERRING ASSETS IN FAVOUR OF A RETIRING PARTNER . (IV) BURLINGTONS EXPORTS V. ACIT [1993] 45 ITD 424(BOM. TRIB.) THE WORDS OR OTHERWISE ARE USED AS AN ALTER NATE TO THE WORDS ON DISSOLUTION AND THEREFORE IN BOTH THE SITUATIO NS, I.E., ON DISSOLUTION OR OTHERWISE, THE DISTRIBUTION OF A CAPITAL ASSET I S A MUST. FROM THE ABOVE IT IS CRYSTAL CLEAR THAT SECTION-45( 4) OF THE ACT MANDATES THE ASSESSEE FIRM TO BE LIABLE FOR CAPITAL GAIN TAX ARISING OUT OF THE TRANSFER OF ITS ASSET TO THE RETIRING PA RTNER EVEN IN THE CIRCUMSTANCE WHEN THE PARTNERSHIP IS RECONSTITUTED ON RETIREMENT OF A PARTNER. FURTHER, THE LOAN TAKEN BY THE ASSESSEE F IRM FOR PURCHASE OF THE ASSET WHICH IS TRANSFERRED CANNOT BE FACTORED B ECAUSE THE LOAN ITA NO.2324/MDS/2014 18 DOES NOT ALTER THE COST OF THE ASSETS PURCHASED OR THE VALUE OF THE ASSET TRANSFERRED TO THE TRANSFEREE. THEREFORE WE DO NOT HAVE ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT (A) AS WELL AS THE ORDER OF THE LD. ASSESSING OFFICER. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON 12 TH JUNE, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 12 TH JUNE, 2015. K S SUNDARAM. & (,/0 1 0#, /COPY TO: 1. $% /APPELLANT 2. ()$% /RESPONDENT 3. * 2, ( ) /CIT(A) 4. * 2, /CIT 5. 05 (,6! /DR 6. ' 7+ /GF